Delivering a majority judgment, Chief Justice S.H. Kapadia said Indian tax authorities have no jurisdiction over the transactions carried out abroad.

He said for the stability of economic operations, investors should know where they stand.

Hutch Essar, whose Indian operations were acquired by Vodafone, was not a fly-by-night operator and was in India since 1994 and had contributed Rs.20, 242 crore by way of direct and indirect taxes, he said.

The court said the tax authorities will return the Rs.2, 500 crore that Vodafone had deposited in pursuance to its interim order within two months from Friday.

It also said tax authorities will pay interest at the rate of four percent per annum from the date the tax authorities withdrew money from the court's registry and up to the date when they actually return money.

Vodafone hails SC judgment

Hailing the Supreme Court's ruling, Vodafone which is the second largest telecom operator in India, said the judgment underpins its confidence in the country.

"We welcome the Supreme Court's decision, which underpins our confidence in India. We will continue to grow our Indian business - including making significant investments in rural areas and in 3G network coverage - for the benefit of Indian consumers," Vodafone CEO Vittorio Colao said in a statement.

The Supreme Court on Friday set aside the Bombay High Court judgment asking Vodafone International Holdings to pay Rs 11,000 crore to Income Tax department, on the ground that Indian authorities do not have jurisdiction on an overseas transaction.

Further, the company said,"Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable and we are pleased with today's judgment in the Supreme Court."

The court also asked the IT department to return Rs 2,500 crore deposited by Vodafone, in compliance of its interim order, within two months along with 4 percent interest.

It asked Supreme Court registry to return within four weeks, the bank guarantee of Rs 8,500 crore given by the telecom major.

"We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system...," Colao added.

CBDT constitutes committee to study SC order

Meanwhile, the Central Board of Direct Taxes (CBDT) has constituted a "core committee" of officials to study on Friday's Supreme Court judgement on the Vodafone taxation case.

"The 10-member committee will go through the 275-page order of the Supreme Court and suggest a strategy for the future," a top official involved in the case said.

The report will soon be submitted to the CBDT, he said. The Supreme Court on Friday set aside the Bombay High Court ruling asking Vodafone International Holdings to pay Rs.11,000 crore in income tax on acquisition of interests in Hutchson-Essar Limited in 2007 overseas.

It asked the Income Tax department to return Rs 2,500 crore deposited by Vodafone International Holdings within two months along with 4 percent interest.